MARKET WATCH

MARKET WATCH; The C.E.O.'s Mad, Mad World

By GRETCHEN MORGENSON

Published: March 7, 2004

THE fireworks at Disney's annual meeting last week prove that shareholders are finally becoming intolerant of me-first managers. Disney's reaction, however, also shows how loath entrenched executives are to sit down, shut up and do what is right.

For example, Michael D. Eisner resigned as chairman of Walt Disney but is remaining as chief executive. That's his answer to smoldering shareholder rage?

Mr. Eisner, whose pay set records in the 1990's, is not the only one in denial about how vulnerable his arrogant behavior has made him. Many company compensation committees are, too. Why else do they keep lavishing pay on executives that is not remotely justifiable?

According to a preliminary analysis of 2003 executive compensation by Watson Wyatt Worldwide, a benefits consulting firm, the trend for C.E.O. pay is still up, up, up. Given that shareholder rage is also rising, this should make proxy season quite entertaining.

Many companies have not yet filed their reports detailing executive pay. But the reports of 57 that have done so show just how good it is to be a chief executive.

Base salaries and bonuses have climbed, and the value of unexercised options has rocketed, largely because of a rising market. Salaries at the companies rose 8.3 percent last year, to an average of $818,000. Annual bonuses climbed 13 percent, to $1.06 million. But the median value of stock options that were exercisable surged 53 percent, to $8.3 million, from $5.4 million in 2002.

Indefensible pay patterns are sure to be Topic A among irate shareholders this year. TIAA-CREF, the giant pension fund, is in discussions with 50 companies it has tagged for board independence issues. ''Every one of those companies has an executive compensation problem,'' said Peter Clapman, chief counsel for corporate governance at the fund. ''Executive comp is going to be the hot button going forward. The numbers always look bad, but the process that got us there has a totally wrong smell about it.''

What chief executives cannot seem to get through their skulls is that they do not act in isolation, that they are not boys in a luxurious bubble.

For example, many chief executives take big pay increases happily, while in the real world their stocks are languishing and thousands are losing their jobs.

John Challenger, chief executive of Challenger, Gray & Christmas, an outplacement firm, has one explanation. ''Generally, tenure is pretty short for C.E.O.'s,'' he said. ''They basically get about one term in office, sometimes two, and that leads to a kind of strike-it-rich mentality.''

CONSIDER the payout in 2003 to Edward E. Whitacre Jr., chairman and chief executive of SBC Communications. Mr. Whitacre was awarded $19.5 million in salary, bonus, long-term incentive pay, restricted stock and other compensation last year, up from $10.1 million in 2002.

SBC's stock, however, was down 4 percent in 2003. And even as Mr. Whitacre was enjoying his raise, some 4,000 SBC employees were losing their jobs.

Anne Vincent, an SBC spokeswoman, said, ''Mr. Whitacre's 2003 compensation generally reflects the fact that SBC had a great year operationally and his leadership had a lot to do with that.'' She said the compensation committee was reducing its reliance on stock options.

Then there is John Tyson, chairman and chief executive of Tyson Foods, the giant meat and food producer. Last year, he received $20.9 million in compensation and 1.2 million stock options. In 2002, he received $7.6 million and 200,000 options.

At least Tyson's stock rose 18 percent in 2003. Some of its workers did not fare as well. In 2003, the company fired 650; this year, it announced layoffs of 6,000.

Well, someone has to pay for Mr. Tyson's raise. A company official did not return a reporter's call.

Unless they want to face a firestorm, executives must learn to deal fairly with their owners and their workers.

The blood is in the water. The shareholder sharks are circling. But coddled and controlling chief executives still don't think they need to change their mercenary ways. Pretty amazing.